The euro continued to drift lower in quiet uneventful London trade, as currency markets digested yesterday’s FOMC meeting that proved to be surprisingly dollar positive. Although Fed Chair Janet Yellen stressed the fact that rates were likely to remain for a considerable amount of time, her generally upbeat assessment of the US economy and reassurance that the taper process will remain on schedule, convinced the markets that the Fed could begin tightening rates in the first half of 2015 and the dollar rallied across the board.

There has been little follow through action in the European session so far, but the EUR/USD has once again drifted lower to test support at the 1.3800 figure as Angela Merkel addressed the German Parliament on the issue of sanctions against Russia for its annexation of Crimea. The heightened political tensions along with what is now viewed as a more hawkish US monetary policy could continue to pressure the unit lower as the day progresses.

Yet another stress point on the euro is the lingering deflationary pressures in the Eurozone. Today’s German PPI data once again missed expectations printing at 0.0% versus 0.2% eyed. The downward pressure on price is of no doubt a concern for the ECB which only last week acknowledged that the high EUR is starting to factor in their assessment of monetary policy. If currency traders begin to anticipate some possible easing from the ECB at its next meeting in April the pair’s decline could accelerate markedly as the gulf between tightening US monetary policy and the more accommodative policy from the ECB grows wider.

Elsewhere the SNB left rates unchanged and reaffirmed its commitment to the 1.2000 peg noting that it is ready to buy unlimited quantities of foreign currencies in order to maintain the exchange rate. The central bank also lowered its inflation estimates for 2015 to 0.4% and stated that it does not see 2% inflation target for the entire forecast horizon.

Over the past several weeks as tension in Ukraine have mounted EUR/CHF has drifted to the lower end of its range coming dangerously close to the 1.2100 mark. The pair has recovered to 1.2200 as the Ukraine crisis has cooled but it remains pressured and the SNB will likely have to maintain its vigilance as the pair continues to trade uncomfortably close to its 1.2000 peg.

In North America today the market will get a look at the weekly jobless claims and the Existing Home Sales and Philly Fed numbers. All of the data is second tier but if it surprises to the upside it will only add to the general dollar bullish sentiment and could push the EUR/USD towards the test of the 1.3750 level as the day proceeds.